Watch Disney Use Price and Promotion to Squeeze its Rivals

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From my brilliant friend Bob Wright in Orlando:

“I feel lucky to be watching a marketing lesson on at least two of the four P’s of marketing — pricing and promotion, especially the use of price as strategy — provided by Disney. No picking sides here, but it is fascinating and what WDW is doing now will shape the competitive landscape for years to come.”

Orlando Sentinel August 10, 2006

I remember when Mickey Mouse took out Church Street Station with brutal efficiency by building Pleasure Island. In a few years, downtown’s bustling tourist spot was deserted.

I hope Universal Orlando and SeaWorld paid attention. They’re next.

The tourism industry is undergoing a tectonic shift, and the Mouse is positioning himself to deal with it.

Tourism has gone from an economic thrill ride to “mature industry.” There will be no new parks. There will be no huge annual increases in the number of visitors.

To keep those turnstiles turning faster, or even to keep pace with past attendance figures, the theme parks must capture a greater share of the market. That means they must cannibalize one another’s crowds.

This is exactly what Disney had in mind when it came out with a new pricing structure in January 2005 called “Magic Your Way.”

Naturally, it involved a price hike for daily admissions. But then came this carrot. Prices would plunge the longer you stayed at the parks.

For example, a basic three-day pass costs $192. For only $10 more, you get admission for a fourth day. For only $4 more, you get a fifth. From there, it is only $2 more for each additional day up to 10 days.

Disney has four parks. The average out-of-state visitor stays about six days. One might assume this average visitor would spend a day at each Disney park, then maybe head to Universal and/or SeaWorld.

Now plug in Magic Your Way.

Let’s say your family of four is visiting Disney for six days. You’ve been to each park and now are considering options for days five and six. With Disney’s pricing, you could get the whole family into the Disney parks — there’s still plenty left to see — on both days for a total of only $24.

But if you took the family to Universal Orlando and/or SeaWorld for those two days, the tickets could cost you about $500.

Has this had an impact?

Last year, attendance at SeaWorld was stagnant, while attendance at Universal Orlando plunged 8.5 percent. But attendance at Disney parks was up between 5 percent and 6.5 percent.

I think this success was behind Disney’s recent price hike, the second this year. The Mouse smells blood. Not only does this help make up for lost revenue from the discounted days,it also makes the longer stays an even better deal.

The major theme parks have a tradition of matching one another’s price increases. Nobody wants to look like a discount attraction. But Disney has put SeaWorld and Universal in a box. If they do raise prices, they simply make Magic Your Way a better alternative to their parks. Universal and SeaWorld also have multiday-pass discounts, but they are not multiday destinations.

In the long run, the only way they may be able to compete is to hold down prices on their one-day admissions. The Disney squeeze is on, as both are offering various discounts. SeaWorld now is offering adult tickets at child prices on its Internet site.

When you cut a company’s revenue growth, you cut its ability to invest in the product. This could give Disney what it has long wanted for its competitors, and what Universal and SeaWorld have long tried to avoid — second-tier status.

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